2.Consider a portfolio of 3 bond A and 2 Annuity B, the yield rate is i-5% for A and B. Bond A: F=C=$1000, 4-year with annual coupon at 4%, Annuity B: A one-year deferred annuity-immediate with 3 level payments 50. (1) What is the PV of this portfolio? (2) Find the Macaulay Duration D and DB (3) Find the Modified Duration MDA and MDB (4) Find the Modified Duration for the portfolio. (5) Use modified approximation to estimate the change in PV when both bond yield rate rise by 0.2%

2.Consider a portfolio of 3 bond A and 2 Annuity B, the yield rate is i-5% for A and B. Bond A: F=C=$1000, 4-year with annual coupon at 4%, Annuity B: A one-year deferred annuity-immediate with 3 level payments 50. (1) What is the PV of this portfolio? (2) Find the Macaulay Duration D and DB (3) Find the Modified Duration MDA and MDB (4) Find the Modified Duration for the portfolio. (5) Use modified approximation to estimate the change in PV when both bond yield rate rise by 0.2%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

2.Consider a portfolio of 3 bond A and 2 Annuity B, the yield rate is i=5% for A and B.
Bond A: F= C = $1000, 4-year with annual coupon at 4%,
Annuity B: A one-year deferred annuity-immediate with 3 level payments 50.
(1) What is the PV of this portfolio?
(2) Find the Macaulay Duration D, and Dg
(3) Find the Modified Duration MD and MDg
(4) Find the Modified Duration for the portfolio.
(5) Use modified approximation to estimate the change in PV when both bond yield rate rise by
0.2%

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8. Assume the risk-free rate is 6.7% and the expected return on the market portfolio is 7.8%. Use the capital asset pricing model (CAPM) to find the required return for each of the securities in the table here, 7. Review On Click the icon to see the Worked Solution. The required return for investment A is %. (Round to one decimal place.) The required return for investment B is %. (Round to one decimal place.) The required return for investment C is %. (Round to one decimal place.) The required return for investment D is %. (Round to one decimal place.) The required return for investment E is %. (Round to one decimal place.) 7: Data Table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Security Beta A 1.34 в 0.93 0.13 0.96 E 0.67
(c)) Discuss the following graphic, which shows the relationship between expected return and portfolio weights. The portfolio is comprised of a debt security D and an equity security E. What would the portfolio strategy be when Wp = 2 and ba WE = -1? 38 (33) -0.5 Expected Return 13% 8% Debt Fund 0 (ebenso) esenicut adol leu@ ledol (loorba (ognerloxel) Ismet tametnl Equity Fund 1.0 0 OC) becida nieu to 2.0 w (stocks) AB -1.0 68 XO.YOUTS RO w (bonds)=1-w (stocks) 15 V10 anollesup Figure 7.3 Portfolio expected return as a function of investment proportions la 21101TO
Suppose that a portfolio consist of three securities: A, B and C with expected rates of return of 5%, 9% and 14% respectively. Find the expected rate of return on each of the following two portfolios of these securities: Portfolio A where wA = WB = Wc Portfolio B where wA = WB = 2wc Assume that you currently have $10,000 and that the risk of each portfolio is 10%. Which portfolio which you choose and why? b) How much will you have invested in each security in each instance? c) What is the expected value of the portfolio one year from today? d) What is the expected return on the portfolio in $ terms, assuming no taxes nor fees?
Suppose that an FI holds two loans with the following characteristics. Annual Spread Between Loss to FI Expected Loan Rate and FI=s Annual Given Default Loan Xi Cost of Funds Fees Default Frequency 1 .6 4.5% 2.5% 30% 3% ρ12 = -.4 2 .4 3.5% 2% 20% 5% Calculate of the return and risk on the two-asset portfolio using KMV Portfolio Manager.
Give typing answer with explanation and conclusion Consider a coupon bond with coupon payment=4.25, M=100, and n=2. Suppose ?1 = 4% and ?2 = 4.24%. Consider a forward contract for the delivery of the coupon bond in one period from today. Calculate the forward price using the following two approaches: 1) use the forward rate to price the forward contract; 2) use the cost of carry approach: spot-forward parity adjusted for the coupons.
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1.
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